Are declining effective tax rates indicative of tax avoidance? Insight from effective tax rate reconciliations

• 成果类型: Article
• 署名作者: Drake, Katharine D.; Hamilton, Russ; Lusch, Stephen J.
• 署名单位: University of Arizona; Southern Methodist University; Texas Christian University
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2020.101317
• 发表日期: 2020
• 关键词: information; income

摘要

Effective tax rates (ETRs) are often used to compare tax avoidance across firms and time. Using firms' detailed tax footnote data, we find that the effect of valuation allowances (VA) related to prior-period losses biases GAAP ETRs. This downward bias explains almost all of the downward trend in domestic firms' ETRs over the last 20 years. We also find that VAs explain cross-sectional differences in ETRs for both domestic and multinational firms. We show this bias extends to cash ETRs and the Henry and Sansing (2018) tax avoidance measure. We develop a methodology for substantially reducing the bias in both timeseries and cross-sectional analyses of cash and GAAP ETRs. Overall, our results suggest firms' loss histories and GAAP rules influence inferences from tax avoidance proxies. (C) 2020 Elsevier B.V. All rights reserved.